Britain’s employers will come under increased pressure to provide greater salary increase budgets following the recent UK interest rate hike, according to management consultancy Hay Group.

Higher inflation, combined with increased interest rates, represents an erosion of the buying power of workers’ pay packets – due to rising prices and greater mortgage and loan repayments. Sharp increases in energy and public transport costs in recent months have also added to the pressure on real earnings.

It says as a result, a standard wage increase - of, for example, 3.5% - will effectively represent less in real terms than before inflation and interest rates climbed.

“Rising household expenditure and debt repayments mean reduced cash available for other expenditure,” says Rob McPherson, consultant at Hay Group. “This can only act to raise employees’ expectations at salary review time.

 “There’s no doubt that we are in a period of upward pressure on wages – which can only be exacerbated by the latest interest rate hike and surrounding economic conditions,” says McPherson.

“A key influence on future salary increases will not only be how the MPC manages UK inflation, but also how companies react to the demands of their employees in the face of increasing costs.”